The Crypto Freedom Alliance of Texas (CFAT) and digital asset company Lejilex have taken legal action against the United States Securities and Exchange Commission (SEC) in a bid to seek clarity on the status of digital assets sold on the secondary market.
On February 21, CFAT and Lejilex filed a lawsuit against the SEC in the Northern Texas District Court in Fort Worth. Lejilex, which is planning to launch a cryptocurrency exchange called Legit.Exchange, is co-founded by Mike Wawszczak, an attorney and general counsel of Alliance DAO, as stated on his LinkedIn profile.
The lawsuit presents one count against the SEC, referring to the Declaratory Judgment Act and a 2007 case as a precedent. The plaintiffs are seeking several rulings from the court, including a declaration that digital assets sold on the secondary market are not investment contracts under federal securities laws.
Furthermore, they request that the court affirm that Legit.Exchange is not an unregistered securities exchange and that Lejilex will not be considered an unregistered broker or clearing agency for operating the exchange.
The plaintiffs argue that the SEC’s recent enforcement actions have taken an unprecedented stance, suggesting that almost all digital asset transactions constitute investment contracts under federal securities laws. They claim that this position places law-abiding participants in the digital asset industry at risk of facing SEC enforcement actions for non-compliance with the SEC’s broad interpretation of its authority.
Lejilex describes Legit.Exchange as a noncustodial digital asset trading platform that utilizes smart contracts, enabling users to trade with one another while maintaining anonymity. Lejilex will oversee asset verification and determine which assets can be traded, charging a fee for these services. However, it will not have custody of user assets. The company plans to launch Legit.Exchange by the end of the year, according to its website.
Lejilex was established in 2023, as indicated on its website, and has maintained a presence on X (formerly Twitter) since September. CFAT was also founded in September. Supporters of the nonprofit organization include a16z crypto, Coinbase, Ledger, Bain Capital Crypto, Blockchain Capital, and Paradigm.
The lawsuit extensively discusses the Howey test and references the Wahi case, as well as the SEC’s actions against LBRY, Binance, and other entities.
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